Crop insurance policies are crucial for farmers

As someone who has spent more than four decades managing a fourth-generation farm and the past 10 years building my family’s crop insurance agency, I believe I have valuable perspective worth sharing regarding how essential today’s federal crop insurance policies are to America’s farmers and consumers.

Specifically, I would like to explain how essential the harvest price option has become to the modern agricultural producer. The harvest price option insures a crop at its actual harvest-time value.

Think of it like a homeowner’s insurance policy: If your home appreciates in value after you purchase it, you are protected at the home’s current value if it burns down and you have to rebuild.

Unfortunately for agriculture, this policy that makes rebuilding possible has come under fire from those who misunderstand the unique risks for farmers who are constantly exposed to the ravages of Mother Nature.

It is important to note that farmers pay an additional premium for this type of protection, and it supports their risk management in two distinct ways. First, a farmer often prices a large percentage of his anticipated — or before-harvest — crop using forward price contracts with a local elevator. If a natural disaster strikes and causes production to fall short of the quantity sold, the farmer would need to purchase enough of the crop to fulfill his contractual obligation. In the meantime, the price of the commodity likely will have have increased because of the overall drop in production after the disaster. Consequently, the remaining crop available to purchase is priced much higher than what was covered under the spring contract.

By purchasing the harvest price option as part of his crop insurance policy, the farmer is able to meet his contractual obligations either by buying grain to deliver under the contract or by making a financial settlement with the purchaser.

A second way the harvest price option becomes essential to producers is if the grain being produced is intended to support the farm’s future animal feed needs. If a natural disaster destroys the grain that is to be harvested, then the producer will be forced to purchase feed instead. If there is a widespread short crop, the feed costs will be much higher.

With the harvest price option on the producer’s crop insurance policy, the farmer will be paid the actual harvest price on his lost production. This, in turn, allows him to purchase the feed needs for his livestock operation and still maintain a viable business.

In fact, allowing farmers to maintain a viable business when the unexpected happens is what crop insurance is all about. The beneficiary is not just the farmer, but also the American consumer.

Crop insurance enables farm families such as mine to pick up the pieces after a disaster and continue to produce food and fiber without significant price increases or supply shortages for consumers.

The fact that Americans spend less of their disposable income on food than any other country speaks volume as to how critical it is that farmers have risk-management tools such as crop insurance.

The critics would do well to try to understand the link between a viable crop insurance program and an affordable, stable food supply before proposing measures that would destroy it — in other words, before biting the hand that feeds them.

By: Gary Riekhof, Missouri farmer and crop insurance agent

Crop insurance helps farmers survive unpredictable weather

“Frost threatens northern U.S. corn; rains soak southern Plains.”

This recent headline says it all. The diversity of American agricultural production coupled with the varied growing conditions across the country and the swings in weather explains why farmers need a safety net. More importantly, it describes why crop insurance is the centerpiece of the farm safety net.

U.S. multi-peril crop insurance is a risk management tool that farmers, regardless of their location, crop, or production method, purchase to protect against the loss of their crops due to natural disasters such as hail, drought, freezes, floods, fire, disease, or the loss of revenue due to a decline in price. Farmers buy policies to fit the individual needs of the their operations. In 2014, 1.2 million policies were sold protecting more than 120 different crops covering 294 million acres.
I have been farming corn and soybeans for about three decades and I have always purchased crop insurance even though I work in a climate setting that typically doesn’t experience wide weather extremes like our neighbors in other parts of the country.

That doesn’t mean we haven’t been hit with our share of unpredictable weather conditions that made planting and harvesting a crop challenging. It does mean I customize the policy I purchase to meet the needs of my operation.

For example, just two years ago, we had a hard time getting a crop in the ground because nine inches of snow blanketed the area on the second day of May, which is normally the time when we’re wrapping up the planting season. The soil was already soaked from a rainy spring season. That year we didn’t start planting until the middle of May and didn’t finish until the first week in June.

Late planting can potentially put a farmer in double jeopardy – not only are they expecting lower yields because of the delay in planting, but that crop is also vulnerable to frost around the autumn harvest time.

This was the first time in more than 20 years of farming that we planted corn in June – more than a third of our crop. It was also the first time we elected to take prevented planting provisions for roughly 5 percent of our acres as part of our crop insurance policy. Prevented planting provisions are designed to provide coverage when extreme weather conditions prevent a farmer from getting in the fields.

Crop insurance helped us cover some of the loss from that bad year. It made it manageable, which is why it’s an essential risk management tool for my farm and others like mine all across the country. The cost of growing crops has increased substantially. It wasn’t too long ago that it took about half of what it takes to grow an acre of corn. Because of these costs, a substantial crop loss would be a major financial setback for anyone. With crop insurance, we are able to level the highs and lows.

There have been a lot of changes to farm policy through the years to reflect the changing times, but given the diversity of agriculture in our country and the way crop insurance can be uniquely tailored to address disastrous conditions in an efficient and effective way, it should only be strengthened in the years to come.

Peterson is a farmer from Northfield, Minnesota and the president of the Minnesota Corn Growers Association.